First put a formal exit strategy in place to allow you to exit the current status quo in an orderly fashion.
The tax issues you will need to consider come under two headings:
- I) Capital Gains Tax on sale of the business
- II) Capital Acquisitions Tax on making a gift or bequest of the businesshere
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Having built up a business over several years most entrepreneurs are aware that failing to plan for the years up to their impending retirement will have repercussions for their business’ survival. However this is easier said that done as there are many family, staff and ownership issues many of which are emotional which mean it’s easier to put the whole matter on the long finger!
It is fundamental for business owners to take stock of what stage their business is at, what value is now built up in the business and how this can be enjoyed now and in the future by the founder and his family.
Participating in an Exit Strategy planning session will look for ways to realise and build on the value of what the business owner has created.
Whatever the case, there are certain steps every owner should take when preparing their companies for succession. The first thing they should do speak to someone who has experience personally of business succession or an adviser who has worked before with business owners in putting into practice a business succession plan.
If you require more information please consult your tax advisor or email us at tax@fixmytax.com.
RETIREMENT RELIEF from Capital Gains Tax comes under two headings:
(a) Disposal of Business or Farm or Shares in Family Company...click here
(b) Disposal within the Family of Business or Farm or Shares in Family Company...click here
A gain accruing to an individual who has attained the age of 55 on the disposal of his business or farm or shares in his family company or holding company is disregarded provided certain conditions are met. Above certian limits, there is marginal relief which restricts the tax payable to one half of the difference between the consideration and the limit.
To qualify for the relief, the individual must have owned the assets for a minimum period of 10 years ending with the disposal and where the farm or business is disposed of through shares in the family company, the individual must have been a working director for 10 years immediately prior to the disposal, of which 5 years must have been spent as a full time working director.
A taxpayer claiming retirement relief in respect of the disposal of shares in a family company, may also claim the relief in respect of land and buildings and machinery and plant which the individual has owned for a period of at least 10 years ending on the date of the disposal provided that; -
- The assets were used by the company throughout the taxpayers period of ownership, and
- The assets are disposed of at the same time and to the same person as the shares in the family company
The relief is also available to farmers transferring land into the early retirement scheme provided that the farmer used the land for the purposes of farming for a period of at least 10 years ending on the date of the transfer.
Retirement relief includes the compulsory purchase of a farmers land by a local authority for the purposes of road widening when, at the time of purchase, or in the preceding 5 years, the farmer had let the land and provided that immediately before the time the farmer let the land he or she used it for the purposes of farming for a period of at least 10 years.
Where an individual disposes of “qualifying assets” before his/her 55th birthday the Revenue Commissioners will consider claims for relief where all the following conditions are met; -
- The claimant is, due to severe or chronic ill health, unable to continue farming, or in his/her trade, profession, office or employment or as a working director in a relevant company
- On cessation the claimant disposes of “qualifying assets” and at that time the conditions for relief, other than the age requirement, are satisfied
- At the time of disposal the claimant is within 12 months of his/her 55th birthday.
An individual claiming retirement relief on these grounds should provide medical evidence of the illness and outline the circumstances in which the relief is being claimed.
If you require more information please consult your tax advisor or email us at tax@fixmytax.com.
Irrespective of the amount of consideration for the disposal, total relief may be claimed by an individual aged 55 years or over on the disposal to his/her child, of the whole or part of his/her business assets or farm, or shares in his/her family company (to the extent to which there value is derived from chargeable business assets). The ownership, use and working director requirements are similar to relief outside of the family as referred to above. A disposal to a niece or nephew, who has worked full-time on the farm or in the business for the previous 5 years, will similarly qualify for relief.
If the assets upon which exemption has been granted are disposed of within six years of having being acquired by the child, the capital gains tax which would have become payable, but for the exemption, becomes payable as well as any other capital gains tax which may be due on the disposal by the child.
If you require more information please consult your tax advisor or email us at tax@fixmytax.com.
A business may be transferred by gift or bequest and is governed by the provisions of Capital Acquisitions Tax also known as gifts and inheritances tax.
GIFT TAX AND INHERITANCE TAXA relief from capital acquisitions for all gifts and inheritances of relevant business property is available.
Only relevant business property will qualify for the relief. “Relevant business property” includes the unquoted shares or securities of a company carrying on a business provided that the beneficiary will, on the valuation date and after taking the gift or inheritance, either;
- Own more than 25% of the voting rights of the company
- Control the company or
- Own at least 10% or more of the aggregate nominal value of all the issued shares and securities of the company and have worked full-time in the company throughout the period of 5 years ending on the date of the gift or inheritance.
Land, buildings, plant and machinery owned by the disponer but used wholly or mainly for the purposes of a business carried on by a company controlled by the disponer.
The relief will amount to a reduction of 90% in respect of the value attributable to relevant business property taken by the beneficiary.
To qualify for the relief the relevant business property must have been owned for a continuous period of 5 years prior to the date of the gift or inheritance. However, if the inheritance is taken on the death of the disponer the relevant period is 2 years prior to the date of the inheritance.
If the business ceases to trade within a period of 6 years after the valuation date the relief will be clawed back unless the business is replaced within 1 year by other relevant business property. The relief will also be clawed back if, within that 6 year period, the business or the shares or securities, are sold, redeemed or compulsorily acquired and are not replaced within 1 year by other relevant business property.
If only part of the relevant business property ceases to qualify for the relief the claw back will relate only to that part.
If you require more information please consult your tax advisor or email us at tax@fixmytax.com.
